88 bales of cotton made history this week, becoming the world’s first cross-border interbank trade executed on a blockchain.
Cotton Trade a ‘Truly Innovative Step’
The shipment, delivered from US-based Brighann Cotton, arrived in Qingdao, China — handled by the Commonwealth Bank of Australia and Wells Fargo.
Upon arrival, staff checking in the bales triggered updates to a contract, which automatically signalled ownership transfer and released payment. Although a modest experimental move, the $35,000 trade’s success has produced considerable enthusiasm from partners and speculators alike.
“Existing trade finance processes are ripe for disruption and this proof of concept demonstrates how companies around the world could benefit from these emerging technologies,” Commonwealth Bank’s Michael Eidel told Reuters.
Australian law firm associate and government advisor Scott Farrell described the trade as “a truly innovative step” which “turns up the dial.”
Optimism Meets Regulatory, Legal ‘Concerns’
Trade now comes second to payments for major banks’ attention. In July, another joint effort from Ripple, Canadian bank ATB Financial and technology firm SAP successfully sent the world’s first international interbank blockchain payment to Germany.
Upon completion, ATB stated its intention to work on the customer interface for a potential rollout, yet in principle full-scale bank schemes involving blockchain technology have not yet been brought to market.
Eidel added that for banks, “scalability and interoperability of different blockchains” form barriers they must deal with before blockchain makes major inroads.
Wells Fargo’s head of international trade services Chris Lewis similarly told Bloomberg that “significant regulatory, legal and other concerns” remain.
Trade Finance a ‘Clunky Process’
Banks’ confused treatment of disruptive technologies has drawn criticism from cryptocurrency and fintech circles in the past. However the cotton trade now recommends blockchain in the battle against fraud. Qingdao, for example, was the port at the center of a multi-billion dollar case two years ago. That case involved parties mishandling the endless paperwork that is still a part of every international trade operation.
“Trade finance is one the most clunky processes in business,” Eidel concluded.
With so much optimism around trade, it appears only a seismic political shift could have any impact on progress. Unsurprisingly, it could come in the form of Donald Trump, who as part of his campaign speech stated his intention to transform US trade from “globalism to Americanism.”
In practice, however, how global trade will implement blockchain regulation to govern itself is still pure speculation.
What do you think about the cotton trade? Does it represent a positive step in blockchain implementation? Let us know in the comments section below.
Images courtesy of Shutterstock.